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CHAPTER 1

The Purpose Advantage

There is little doubt that companies focused more deeply on purpose and social good will be positive for their employees and for society at large. But does purpose create a meaningful competitive advantage for your enterprise? Few may disagree with the direction of the trends discussed in this book, but many may doubt whether it is the kind of game-changing force — the revolution — that we believe it to be. If you're thinking along these lines or asking yourself similar questions, we understand — you're not alone.

Many of the CEOs and leaders we interviewed, whose companies are already reaping significant benefit from a focus on purpose, suggested that most leaders still don't get how important this movement has already become. Inge Thulin, president, CEO, and chairman of 3M, for example, told us that "an enterprise not focused on sustainability for their own products and those of their customers will not exist in 50 years." Sustainability of course is bigger than just environment, though "being green" consistently tops the societal concerns of talent and consumers alike; it's about that aspirational focus on making things better.

Darren Entwistle, CEO of TELUS, a large, profitable Canadian telecommunications company and a leader in this revolution, is not only convinced that purpose is critical for business success but bluntly adds, "The vast majority of my CEO peers simply don't get the potential of moving in this direction."

We don't want to scare you into supporting the purpose-driven company philosophy discussed throughout this book, but we do want to show you that the facts all point to a changing world — an age of social good in which purpose increasingly lies at the heart of employee, customer, and investor motivation. We believe that once you understand the facts and the power of the purpose revolution, you won't be able to ignore it any longer. To start, let's consider the business case for purpose. There are three dimensions to explore: the risks of not focusing on purpose, the direct opportunity that comes from purpose, and the indirect benefits that derive from a purpose-driven culture.

THE BUSINESS CASE FOR PURPOSE

In the age of social good, there is great risk in not being a purpose-driven company that perpetuates social good. Take Volkswagen (VW), the German auto manufacturer whose scandal involving manipulating the software on its cars to deceive regulators about the vehicles' emissions cost the company billions of dollars in lawsuits and reparations to dealers, as well as customers. It also started a conversation among the car-buying public. A colleague told us recently about a conversation he had with a group of fellow professionals at a party, half of whom said they would never again buy a VW product. The value of VW stock has been decimated — cut in half — and there is a good chance the scandal will follow the company for years to come.

Many top talent, especially young recruits, now compile lists of companies they simply won't work for. Take the case of Lisa, a top grad from the Wharton School of the University of Pennsylvania, who told us, "My friends and I researched companies we felt were working against values we care about. Companies like Exxon[Mobil], VW, BP [British Petroleum], Monsanto, and about 30 others were on our list. We called it the 'no fly' list." Companies made the list for reasons ranging from environmental damage to ethical lapses.

Recruiters at 3M, Ford, and many other companies tell us that on college campuses, students increasingly come armed with information about the company's corporate reputation already in hand. One HR exec said to us, "They already know our story; they just want to know if it's real." If recruits believe that your company is serious about its mission, they'll be more open to working with you. If they find that there are holes in your corporate reputation, they won't mind writing you off — there are plenty of other companies out there whose values align with theirs.

Though the risk side is a strong case for purpose, the upside of being purpose driven is even stronger. Consider a 2015 study by IO Sustainability and Babson College titled Project ROI Report: Defining the Competitive and Financial Advantages of Corporate Social Responsibility and Sustainability. The research study took a wide path to examine far-reaching data points and do a meta-analysis of whether being good pays off. The report found that "strong corporate responsibility (CR), which is one important part of the purpose equation, increases commitment, affinity, and engagement of employees." Note that corporate social responsibility is not synonymous with purpose, though it does play a role in how companies drive and activate purpose today.

The study reports that employees would be willing to take a 5 percent pay cut to work for an employer that is committed to social responsibility. Organizations with effective CR programs and approaches can increase productivity by up to 13 percent and reduce the annual quit rate by 3 to 3.5 percent, saving replacement costs of up to 90 to 200 percent of an employee's annual salary for each employee who stays. Over time the average turnover rate can be reduced by 25 to 50 percent.

The study also revealed that strong CR has a meaningful impact on marketing and sales and can "increase revenue by 20 percent; increase price premium up to 20 percent; and increase customer commitment in the total segment of 60 percent." Maybe most telling is that, according to Project ROI, corporate responsibility has the potential to "increase market value by up to 4–6 percent; over a 15-year period increase shareholder value by USD $1.28 billion; and avoid market losses from crisis by USD $378 million."

As you can see, we're not talking about chump change here; this is a phenomenon of epic proportions. If you don't heed the warning signs, you not only leave money on the table but also lose the best and brightest minds. This talent pool is not just domestic, either. One of the most important aspects of this revolution is that the purpose-centered employee is a global phenomenon cutting across borders. A 2016 global survey of 26,151 LinkedIn members in 40 different countries and speaking 16 different languages found that 37 percent of LinkedIn members are "purpose oriented" and "38 percent considered purpose to be equally weighted with either money or status."

The countries rating highest on purpose orientation were Sweden (53 percent), Germany (50 percent), the Netherlands (50 percent), Belgium (49 percent), and Poland (48 percent). The United States showed a 40 percent purpose orientation in its workforce. The lowest purpose-oriented country in the study was Saudi Arabia, at 23 percent. For many companies the war for talent is a global fight, so showing how your team is helping solve the world's great challenges is becoming a ticket to engaging talent everywhere a company operates. And it's not just potential employees — it's potential new customers.

A GLOBAL OPPORTUNITY

One of the greatest opportunities in business today is in reaching the emerging global middle class. What it takes to win this growing market might surprise you. The rise of the middle class in the developing world, particularly in Asia, is a major aspect driving the purpose revolution. China, for example, has brought more people into the middle class and out of poverty in a shorter span of time than any society in human history. The Edelman Goodpurpose Study showed that 80 percent of consumers in China and 71 percent in India were willing to pay more for products from companies with a purpose.

John Edwin Mroz, founder, president, and CEO of the EastWest Institute and a mentor of ours, spent a great deal of time working at high levels with the Chinese government. Behind the scenes their most senior people told him they were surprised that once they brought so many people into the middle class, expectations changed rapidly. Suddenly, people were demanding a clean environment and more accountability while increasing pressure on the government to address such specific issues as air pollution and food safety.

People in poverty don't generally push businesses to be more responsible, nor do they focus primarily on the sense of purpose they get at work; but once people rise to a higher income level, they begin considering these factors. Right now this is occurring across the developing world in greater numbers than ever before. This rising middle class in the developing world will pressure companies to take purpose and social responsibility very seriously.

In a 2015 Forbes article, Bill Fischer points out that the rising Chinese middle class and "growing focus on serving Chinese consumers" is driving companies to shift their culture toward innovation and that the most successful innovations are driven by "pursuing a sense of purpose." One example of this is Shinho, a Chinese food company which, in the words of Charles Hayes, managing director of IDEO China, is motivated "not just by commercial objectives, but by using their business to improve people's lives."

Shinho's higher aspirations are evident in its mission: We lead the diet to improve the ecology, so that family peace of mind to enjoy every meal, live music every day. Shinho's purpose is realized through its commitment to seven causes: sustainable agricultural cultivation, a reliable diet supply chain, innovative product development, high standards of manufacturing, convenient retail channels, an extreme diet experience, and a full range of food education.

As incomes rise internationally, an emerging desire for meaning is accompanied by disillusionment with modern life. Otto Scharmer, a senior lecturer at the Massachusetts Institute of Technology (MIT), refers to this idea as the "three divides of modern society": the nature divide, the social divide, and the spiritual divide. The nature divide is a growing disconnect between global society and our impact on the environment, evidenced most powerfully by the climate change crisis. The social divide is the increasing gap between rich and poor. The spiritual divide is the growing experience of loss of meaning often related to the experience at work.

These growing divides are fueling a wall of energy heading toward contemporary companies worldwide that will pressure them to address all three divides. Companies will soon be scrambling to keep pace with the emerging desires of talent and customers. Those companies perceived as proactively leading for change will become the preferred brands and employers.

THE COMPETITIVE ADVANTAGE STARTS WITH A CLEAR PURPOSE

In the coming chapters, we profile numerous leaders and companies that we believe are in the forefront of the purpose revolution, driving purpose within their organizations and teams while creating a better world in the process. As you'll see, some of these companies began with a clear purpose woven into the very product they make or service they provide. Others developed their purpose over time, finding what connects with their core values as people and as an organization, and how that relates to their employees and customers. Because unearthing that purpose and communicating it widely is a main tenant of engaging in the purpose revolution, the first step in activating purpose in your organization is to articulate a clear, compelling purpose, one that is bigger than simply making money.

To illustrate the potential of purpose to drive business advantage, take the case of Seventh Generation, which has continuously gained customers in large part due to its willingness to clearly and concisely promote its purpose and then back up the words with deeds.

Seventh Generation: Walking the Walk

Founded in 1988 in Burlington, Vermont, Seventh Generation sells cleaning, personal care, and paper products and supplies, with an emphasis on corporate responsibility, sustainability, the environment, and consumer health. The company's mission is "to inspire a consumer revolution that nurtures the health of the next seven generations."

The company's dish and hand soaps, diapers and wipes, botanical disinfectants, and feminine hygiene products are all made with the customer's best interests at heart, using biodegradable, recyclable, and organic materials and avoiding harmful or harsh chemicals and plastics. The company is particularly well known for its laundry detergent — and not just because it keeps people's clothes smelling fresh and clean.

Seventh Generation believes, as many of its customers do, that people should know what ingredients go into their cleaning products. Customers see the company's commitment to sustainability right on the labels, highlighting the key value attributes of its products. For example, on laundry detergent: "No dyes, optical brighteners or synthetic fragrances, Seventh Generation Laundry Detergent ... [is] made with plant-based ingredients [and] is a USDA Certified Biobased Product 97%." On the dishwasher detergent, in addition to no dyes or synthetic fragrances, the label communicates: "Chlorine bleach and phosphate free." In fact, the company believes so strongly in customer education on this issue that it has taken significant steps toward ingredient transparency for all cleaning-product companies.

The case of a campaign the company ran shows how being purpose driven is good business. In 2014 Seventh Generation led an effort tied to Earth Day aimed at getting the US Congress to pass a bill focused on toxic chemical safety reform, asking people to demand greater regulation over chemical safety. The company ran a full-page ad in the New York Times, asking citizens for 100,000 signatures on a petition to get the bill passed. The ad focused on why the issue mattered for the planet and for society — and it didn't mention the company's products.

Joey Bergstein, Seventh Generation's CEO, says that the ad had a larger impact on sales volume than did all the coupons they offered for a year — even though those directly benefit the customer's wallet. The company tackled an issue that it felt was important to its customers and invited them to get involved directly. The campaign was much more than a simple marketing effort. It solidified Seventh Generation's relationships with its customers and reinforced its mission for good.

The company's current campaign focuses on ingredient disclosure — the Cleaning Product Right to Know Act. The campaign invites people to join the effort to make product labeling transparent and offers clear suggestions on what they can do: "Make sure you're only using products that list their ingredients on the labels" and "Support the Cleaning Product Right to Know Act (H.R. 2728) by contacting your US representative."

Seventh Generation regularly demonstrates its values and shows that it has skin in the game, inviting its growing customer base to participate when it takes a stand. By showing its customers that they are in this fight together and that its actions align with its customers' needs and principles, the company is already winning the purpose advantage.

While this ad campaign was a genuine expression of Seventh Generation's purpose, it also serves as an example to any organization that wants to close the purpose gap and help consumers make the "good" choices they want to make.

Because we never know what will resonate with customers, it's critical to test your purpose initiatives for business impact. Rather than traditional marketing, such testing is ultimately about building a more authentic relationship with consumers centered around your shared values.

CHAMPION A CAUSE

Developing a clear purpose isn't always easy. We've heard from numerous leaders who believe that their company is already too established or traditional — or that the product they sell doesn't lend itself to a purpose like Seventh Generation's — to enable a purpose that will strongly resonate with customers and employees. Sure, Seventh Generation's purpose is essentially laid out in its name, but there are many other companies that are leading with purpose and, in so doing, are attracting and retaining top talent and customers.

The way they do this is by championing a cause that aligns with their customers', employees', and other stakeholders' values, beliefs, or ethics. When your company stands for more than a great product or service, you effect a qualitative shift in the relationship between your company and others. The product or service relationship is transcended, as the company is now viewed as a community member, a valued partner in a group assembled around a common good. Many companies avoid taking a stand to avoid the risk of alienating or turning away potential customers, but people tend to respect companies with the courage to try to right the wrongs that they see in the world.

(Continues…)

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Excerpted from "The Purpose Revolution"
by .
Copyright © 2018 John Izzo and Jeff Vanderwielen.
Excerpted by permission of Berrett-Koehler Publishers, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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